In Alabama, Not All Debts Are Created EqualAlabama’s materialman’s lien statute (specifically, Ala. Code § 35-11-211) was intended to provide construction lenders priority over materialmen as to debts relating to construction projects, and this intent was recently confirmed by the Alabama Supreme Court (GHB Construction and Development Co., Inc. v. West Alabama Bank and Trust, 2019 WL 1416893 (Ala. 2019)).

In a recent decision, a contractor who provided labor and materials for the construction of a house filed a statement of lien after the owner failed to make payment for the amount owed. The property, however, was subject to a future-advance mortgage. The contractor, therefore, filed suit against the owner to collect the balance owed and against the mortgagee seeking a judgment declaring that its materialman’s lien had priority over the mortgage on the property.

The trial court dismissed the contractor’s claim for failure to plead that it commenced work prior to the date the mortgage was recorded. On appeal, the contractor acknowledged that it had not commenced work or provided materials to the project before the date that the mortgage was recorded. Its argument, however, was that it began work prior to the date that the mortgagee made its first loan payment to the owner under the future-advance mortgage and that a mortgage was not created until the debt it secures is incurred. Accordingly, the contractor asserted that the mortgage on the property was not created until the date of the first loan disbursement to the owner, which was after the contractor started work on the project.

Alabama’s Supreme Court disagreed reasoning that future-advance mortgages may remain valid even absent any initial consideration. (Note: If the mortgagee attempted to foreclose on the property without ever advancing any funds, then the mortgagor could bring an action in equity to have the foreclosure enjoined and the mortgage voided.) As such, the Supreme Court determined that the mortgage was legally valid and was superior to the contractor’s materialman’s lien.

This case re-affirms existing precedent related to the priority of debts on construction projects and should remind the construction community that lenders have priority above contractors providing labor and materials. A contractor’s materialman’s lien shall have priority over a mortgage on the properly only if work began prior to the recording of the mortgage. Contractors or subcontractors providing labor and materials to financed projects should take steps prior to commencing work to ensure that they understand the liens or mortgages in line ahead of them. To maximize their priority potential, contractors and subcontractors should also be sure to record timely any liens if payment is not made timely or in accordance with the project requirements.

Recently, the Government Accountability Office (GAO) issued two advisory opinions relating to protests currently before the U.S. Court of Federal Claims (COFC).  See AECOM Mgmt. GAO Issues Rare Advisory OpinionsServs., Inc.–Advisory Opinion, B-417506.12, Sept. 18, 2019; see also PAE-Parsons Global Logistics Servs., LLC–Advisory Opinion, B-417506.13, Oct. 18, 2019.  The decisions themselves do not involve unique issues, but their procedural postures are noteworthy because the GAO does not often issue advisory opinions.

What is a GAO “Advisory Opinion?”

The GAO’s Bid Protest Regulations specifically permit the GAO to issue advisory opinions at the request of a court under its “Effect of Judicial Proceedings” rule:

GAO will dismiss any case where the matter involved is the subject of litigation before, or has been decided on the merits by, a court of competent jurisdiction.  GAO may, at the request of a court, issue an advisory opinion on a bid protest issue that is before the court.

4 C.F.R. § 21.11(b). (emphasis added).

Generally, advisory opinions are not necessary because most bid protests that are adjudicated by both the GAO and COFC do not go to COFC unless and until the GAO has issued a written decision first.  There are, however, exceptions, particularly in large, multi-party protests, where the decision by only one of several protesters to go to COFC can force all the other parties—other protesters, intervenors, and the government—to switch protest fora in mid-stream because of the GAO’s “Effect of Judicial Proceedings” rule.

The reason for the GAO rule allowing advisory opinions is, thus, one of simple efficiency.  As a matter of long-standing practice, the GAO will not consider a protest where “the matter involved is the subject of litigation before a court of competent jurisdiction” because the court’s decision could render the GAO’s decision academic.  See CDW Gov’t, LLC et al., B-414389.25, 2017 CPD ¶ 291 at 3.  That rule traces its roots at least as far back as the GAO’s 1971 Interim Bid Protest Procedures and Standards, which stated, “The Comptroller General may refuse to rule on any protest where the matter involved is the subject of litigation before a court of competent jurisdiction.”  See 36 Fed. Reg. 24,792 (Dec. 23, 1971).

In 1975, however, the GAO amended its Bid Protest Procedures to clarify that it did not need to dismiss a protest that was also the subject of court litigation “where the court requests, expects, or otherwise expresses interest in the Comptroller General’s decision.”  40 Fed. Reg. 17,980 (Apr. 24, 1975).  In 1995, when updating its rules to implement the Federal Acquisition and Streamlining Act of 1994, the GAO named the process of giving its opinion to a court an “advisory opinion.”  See 60 Fed. Reg. 5876 (Jan. 31, 1995).

What happened in AECOM and PAE-Parsons to make these advisory opinions noteworthy?

Both the AECOM and PAE-Parsons court cases involved multi-party protests at the GAO challenging U.S. Army awards of indefinite delivery/indefinite quantity (IDIQ) contracts and task orders under the LOGCAP V solicitation for multiple geographical combatant commands, Army service component commands, and Afghanistan.  DynCorp International, LLC filed the first of the protests but, on July 31, 2019, the GAO denied it.  DynCorp Int’l, LLC, B-417506 et al., July 31, 2019.  Shortly thereafter, on August 5, DynCorp filed a complaint at COFC.

DynCorp filed its complaint four days before the GAO was due to issue decisions on August 9 in the other pending protests involving this same solicitation, which had been filed by AECOM, PAE-Parsons, and Fluor International, Inc.  There is no reason to think that, in filing a complaint at COFC, DynCorp intended to put other protesters at a disadvantage.  Nevertheless, the practical effect of its decision to go to COFC was that, on August 7, two days before the GAO’s decisions would have been due on August 9, the GAO dismissed the pending protests of AECOM, PAE-Parsons, and Fluor under the “Effect of Judicial Proceedings” rule.  See AECOM Mgmt. Servs, Inc. et al., B-417506.2 et al., Aug. 7, 2019.

The GAO’s advisory opinion option, thus, softens the otherwise harsh effect of the dismissal rule by giving a court the option of asking the GAO to finish the job it had almost completed, i.e., writing opinions for the pending protests.  COFC, of course, is not bound by the GAO’s opinions, but may nevertheless find its analysis persuasive.

Since the dismissal of their GAO protests, AECOM, PAE-Parsons, and Fluor have all filed protests at COFC.  Rather than lose the benefit of the GAO’s analysis, the judge who is presiding over all the cases has requested advisory opinions in each company’s prior GAO protest, two of which the GAO has now issued, as noted above.

Why does GAO’s advisory opinion process matter?

Large, multiple-award IDIQ contracts are a fact of life now in federal procurement.  As a result, a single disappointed offeror in a large, multi-party procurement dispute can force—either intentionally or not—all other parties to change venue at any time before the GAO has issued a final decision.  To the degree that the GAO’s advisory opinion is persuasive, it can help the court and the parties avoid re-inventing the wheel entirely by re-arguing everything from scratch at significant additional expense and time.

For these reasons, any protester or intervenor forced by another party to litigate a nearly resolved GAO protest at the COFC should consider filing a motion to request the court seek an advisory opinion from the GAO for the unfinished protest.  In addition, any protester hoping to avoid an unfavorable GAO decision by going to COFC before the GAO finishes its review should bear in mind that the other parties might ask COFC to request that the GAO finish the job.

The Government Accountability Office (GAO) recently issued to Congress its annual bid protest report for Fiscal Year (FY) 2019. As discussed below, this year’s report is particularly noteworthy for multiple reasons, including that it shows that protesters continue to receive some form of relief in nearly half of the protests filed with GAO and reports on the effect of the most recent government shutdown.

First, what is GAO’s Bid Protest Annual Report to Congress?

The Competition in Contracting Act of 1984 (CICA), 31 U.S.C. § 3554(e)(2), requires the comptroller general to report to Congress each instance in which a federal agency did not fully implement a recommendation made by GAO in connection with a bid protest decided the prior fiscal year and each instance in which a final decision in a protest was not rendered within 100 days after the date the protest is submitted to GAO (GAO reports that there were no such occurrences during FY 2019). CICA also requires that GAO include in the annual report a “summary of the most prevalent grounds for sustaining protests” during the preceding year. Further, GAO includes in the report “data concerning its overall protest filings for the fiscal year.”

What are the highlights of the 2019 report?

Of particular note, the FY 2019 report shows that, for the second straight year, protesters received some relief in 44% of the protests. GAO reports this statistic as an “effectiveness rate”—i.e., the percentage of protests where the protester obtained “some form of relief from the agency . . . either as a result of voluntary agency corrective action or [GAO] sustaining the protest.” The following chart shows the “effectiveness rate” for the last five fiscal years and provides additional details on protest volume and success.

GAO Bid Protest Report for FY 2019 is Noteworthy

The report states that “the most prevalent reasons for sustaining protests” during FY 2019 were: (1) unreasonable technical evaluation; (2) inadequate documentation of the record; (3) flawed section decision; (4) unequal treatment; and (5) unreasonable cost or price evaluation.

By comparison, in FY 2018, the “most prevalent grounds” for sustaining protests were (1) unreasonable technical evaluation; (2) unreasonable cost or price evaluation; and (3) flawed selection decision.

Notably, this year’s report to Congress also included a report on the effect of the 35-day-long Government shutdown that began in December 2018 and ended in January 2019. Specifically, the report states, in relevant part:

Because the government shutdown lasted for 35 days, bid protest decision deadlines for eight protests from affected agencies were extended, as needed, for a maximum of 35 days. Despite the length of the shutdown, and because GAO remained open during this period, [GAO] continued to decide all protests within 100 calendar days for the period that the relevant portion of the government was funded.

Wait, I have more questions!

If you have any questions about GAO’s recent report or the bid protest process in general, please do not hesitate to contact Aron Beezley.